Farm policy reform: the European experience Dan Rotenberg, Counselor - Agriculture

1. Farm policy reform: the European experience • Dan Rotenberg, Counselor - Agriculture • Delegation of the European Commission to the U.S. • Domestic and trade impacts of US farm policy • November 15, 2007 – Holiday Inn Capitol

2. Outline • CAP has been radically reformed since 1992 • Main stages: 1992 (Mac Sharry reform), 1999 (Agenda 2000) and 2003 (Fischler reform) • On-going process: sugar, F and V, wine, “health check”… • Reforms driven by both internal and external factors • Internal: budget considerations, EU enlargement, environmental concerns. • External: trade impact and WTO implications

3. Crisis years 70’s - 80’s 2003 CAP Reform Early years 1960’s 1992 CAP Reform Agenda 2000 Price supportSecure food supplies Improve productivity Stabilise markets Income support Single Farm PaymentMarketorientation Consumer concerns Environment Farm income DDA context Production control Slow downexpenditure Reduce internationalfriction Reduce surpluses Price cuts + compensationHave an UR agreement Stabilise budget Protectincome Competitiveness More price cuts + compensation Identify EU Farm Model Rural development Protect environment Enlargement Competitiveness The CAP : from Past to Present

4. CAP reform at a glance • From product price to direct producer support… • – gradual elimination or reduction of support prices into safety-nets • – partial compensation of product support drop by shift to producer support • …to decoupling of direct aids… • – single farm payment based on historical references… • – …requiring compliance with set of existing statutory standards • …and to a better balance of support • – enhancement of Rural Development policy instruments to meet new standards • – shift of funds from market support to rural development • – financing new market reforms with redistribution of direct aids

5. 2003 CAP reform – key objectives • European model of agriculture • a competitive EU agricultural sector • environmentally friendly production methods • quality products • contribution to rural landscapes • dynamic sustainable rural economy • a minimized impact on world stage

6. 2003 CAP reform and DDA negotiations: a pre-emptive action • Decoupling of payments means shifting direct payments • to the green box (non-trade distorting payments) • Prices reduction means reduced need for export refunds • The EU has done its homework with its CAP reform: • -move on domestic support • -move on export subsidies

7. The sugar case: reacting to international pressure • EU25: key sugar player (production: 20 million MT; 14% of world production; net exporter: 4.7 million MT of exports and 1.9 million MT of imports; more than 300.000 producers in 21 MS) • Key elements of support: intervention price, quota system, border protection, preferential access, export subsidies. • But not sustainable: EBA (DFQF from 2009) and WTO challenge (sugar panel – April 2005).

8. Sugar reform and its impact • Internal prices cut by 36% and abolition of public intervention • Farmers partially compensated of income loss through direct payments (merged into the Single payment scheme) • Restructuring fund to encourage uncompetitive producers to renounce to their quotas • Impact: production to fall (6 millions MT), exports to disappear, imports to increase.

9. The effects of the CAP reform • Internally • Externally

10. The path of CAP expenditure EU-25 EU-10 EU-12 EU-15

11. The decline share of CAP budget Agricultural Budget: from 0.63% in 1990/92 to 0.45% in 2005/06 and 0.35% in 2013 Share of the EU agricultural expenditure in the Gross National Income of the European Union (1991-2013) - (constant 2004 price) 0.70% 0.65% 0.60% Share of CAP budget in the EU GNI 0.55% - 46% in % 0.50% 0.45% 0.40% 0.35% 0.30% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

12. Reduction of export subsidies since 1992 -80%

13. Evolution of EU role in world agricultural trade • EU agricultural trade structure balanced • move from quantity to quality • EU agricultural exports mainly (70%) in high value added products • price-dependent bulk commodities represent just 7 % of EU exports • Net export position of the EU decreased in key sectors • most of this decline is driven by CAP reform • most gains go to Southern Hemisphere (Brazil)… • EU = largest market for developing countries • EU = first importer and first exporter of agricultural products

14. A declining share of EU net exports on world markets EU net export share (reform impact)

15. EU net export share (pre-reform)

16. The EU domestic support impact on beef…

17. …and the evolution of EU beef trade!

18. Imports from developing countries (2005)

22. Key factors: • - consumers concerns • - budget pressure • - WTO commitments • - EU enlargement • Key elements: • - decoupling (ends subsidy hunting) • - conditionality on payments • Key lesson: ‘Farm policy reform is a marathon, not a sprint’ Conclusions on EU farm policy reform

23. Thank you for your attention ! dan.rotenberg@ec.europa.eu www.eurunion.org